Which factor does NOT contribute to a higher net income for a company using capital lease accounting?

In capital lease accounting, the treatment of leased assets and liabilities can have a significant impact on a company's financial statements, particularly regarding net income. The correct choice, which is that higher net income in the early years does not contribute to a higher net income, relates to how expenses are recognized.

When a company enters into a capital lease, it records the leased asset as a fixed asset on its balance sheet and recognizes a liability for the lease payments. Over the life of the lease, the asset is depreciated, and interest expense on the lease liability is recorded, which can often result in a lower net income in the initial years when compared to operating leases. This is because, in the early years, the depreciation and interest expense associated with the capital lease can be substantial, leading to lower net income despite potential higher cash flows and operating performance.

In contrast, choices that suggest a greater contribution to higher net income relate to the structure and timing of expense recognition. Lower depreciation expense would indeed lead to higher reported net income, as would higher operating income and higher cash flow, as these measures do not immediately impact the bottom line in the same way. Thus, while higher net income in the early years might intuitively seem like a benefit, it does not actually